Should You Buy Linde Stock At $270?

Linde stock (NYSE: LIN), an industrial gas and engineering company, has seen a 22% fall this year, in line with the broader S&P500 index, down 25%. If we look at the longer term, LIN stock, with 27% returns from levels seen in late 2019, has fared better than the S&P 500 index, up around 10%. Given the decline this year, LIN stock now looks attractive at around $270, as discussed below.

This 27% rise for LIN stock since late 2019 can primarily be attributed to 1. Linde’s revenue rising 16% to $32.6 billion over the last twelve months, compared to $28.2 billion in 2019, 2. a 7% fall in its total shares outstanding to 503 million, driven by $10.4 billion spent on share repurchases over this period, and 3. a 1% rise in the company’s P/S ratio to 4.1x trailing revenues currently. The increase in revenue and a fall in shares outstanding have meant that Linde’s revenue per share rose 25% to $65.13 over the last twelve months, vs. $52.17 in 2019.

Linde is the world’s largest industrial gas company by market share and revenue. It reports its sales under five segments – Americas, EMEA, APAC, Engineering, and Others. Its revenue growth over the recent years has been driven by higher volume and better pricing.

The company has recently announced its plan to double its green liquid hydrogen production capacity in the U.S. It will build a new 35MW plant in Niagara Falls, New York, by 2025, using hydroelectric power to produce liquid green hydrogen. There has been a rise in demand for industrial gases partly due to increasing steel production.

Not only has the company posted robust revenue growth, but it has also seen a steady rise in its operating margin from 10.6% in 2019 to 17.1% in 2021 before falling to 14.9% over the last twelve months. Our Linde Operating Income dashboard has more details.

The strengthening dollar has been a cause of concern for several companies with international operations, and Linde is no exception. Still, its sales are expected to jump over 20% in 2022 to $34.1 billion (per the consensus estimate), driven by a higher pricing environment and continued uptick in hydrogen investments with countries looking to lower their emissions. Assuming the current share count of 501 million (reported for Q2 2022), we arrive at the expected revenue per share of $68.16 for the full year 2022. At its current levels, LIN stock is trading at 3.9x forward expected revenues, compared to the last three-year average of 5.0x, implying that the stock is attractive from a valuation point of view.

While LIN stock can see higher levels, it is helpful to see how Linde’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Textron vs. Aaron’s.

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[1] Month-to-date and year-to-date as of 10/3/2022
[2] Cumulative total returns since the end of 2016

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